Quick Answer
13 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer: Under the Income Tax Act 2025 for AY 2026-27, small businesses with turnover up to Rs 3 crore (95% digital receipts) or Rs 2 crore (otherwise) can opt for presumptive taxation under Section 44AD and declare deemed profit at 6% (digital) or 8% (cash). Professionals with receipts up to Rs 75 lakh (digital) or Rs 50 lakh can declare 50% deemed profit under Section 44ADA.
| Consequence | Details |
|---|---|
| Lock-out period | Cannot opt back into 44AD for the next 5 consecutive assessment years following the year of opt-out |
| Books of account | Must maintain books of account under Section 44AA (equivalent) for all 5 lock-out years |
| Tax audit | Must get tax audit done under Section 44AB (equivalent) if turnover exceeds the audit threshold (Rs 1 crore, or Rs 10 crore if 95% digital) |
| Advance tax | Must pay advance tax in quarterly instalments (15 June, 15 Sept, 15 Dec, 15 March) — single-instalment benefit lost |
| ITR form | Must use ITR-3 (not ITR-4) during the lock-out years |
| Re-entry | Can opt back into 44AD from the 6th assessment year onwards (if other eligibility conditions are met) |
Example: A taxpayer files under 44AD for AY 2024-25, AY 2025-26, and AY 2026-27. In AY 2027-28, they declare income below 6%/8%. The 5-year lock-out runs from AY 2028-29 to AY 2032-33. They can opt back into 44AD from AY 2033-34 onwards.
9. Tax Audit Interaction with Presumptive Schemes
The tax audit threshold under Section 44AB (equivalent under the 2025 Act) interacts with presumptive taxation as follows:
- General audit threshold (business): Rs 1 crore turnover. Enhanced to Rs 10 crore if 95% or more of receipts and payments are through digital/banking modes
- General audit threshold (profession): Rs 50 lakh gross receipts
- Under 44AD (at/above deemed rate): No audit required, regardless of turnover (up to the Rs 2Cr/3Cr limit)
- Under 44AD (below deemed rate): Audit mandatory regardless of turnover amount
- Under 44ADA (at/above 50%): No audit required
- Under 44ADA (below 50%): Audit mandatory
- After 44AD opt-out: Audit required if turnover exceeds Rs 1 crore (or Rs 10 crore if 95% digital)
For comprehensive assessment and audit procedures, see our assessment types guide.
10. Advance Tax Under Presumptive Scheme
A special advance tax rule applies to taxpayers under Section 44AD:
- Section 44AD: The entire advance tax liability must be paid in a single instalment by 15 March of the financial year. The taxpayer is exempt from the quarterly instalment schedule (15 June: 15%, 15 September: 45%, 15 December: 75%). Interest under Section 234C (equivalent) for deferment does not apply if 100% is paid by 15 March
- Section 44ADA and 44AE: The normal quarterly advance tax schedule applies. There is no single-instalment concession for professionals or goods carriage operators under the current provisions
- Interest under Section 234B (equivalent): Applies if total advance tax paid is less than 90% of assessed tax — 1% per month or part of month from April of the AY until the date of assessment
For advance tax due dates and interest calculations, see our penalties and interest guide.
11. Non-Resident Presumptive Schemes
The Income Tax Act 2025 also contains presumptive provisions for non-residents in specific industries (brief overview):
- Section 44B (equivalent): Non-resident shipping companies — deemed profit at 7.5% of freight earned from/to India
- Section 44BB (equivalent): Non-resident oil/gas exploration companies — deemed profit at 10% of amounts received for services/facilities in connection with prospecting, extraction, or production of mineral oils
- Section 44BBA (equivalent): Non-resident aircraft operators — deemed profit at 5% of fares/freight earned from India
- Section 44BBB (equivalent): Non-resident civil construction companies (turnkey power projects) — deemed profit at 10% of amounts received
These provisions are separate from the resident-focused 44AD/44ADA/44AE schemes and cater to specific non-resident industries. For NRI taxation details, see our NRI taxation guide.
12. Numerical Examples
Example 1 — Retailer (Section 44AD, mixed receipts)
Mrs. Priya runs a garment shop. FY 2025-26 turnover: Rs 2,40,00,000 (Rs 2,30,00,000 digital + Rs 10,00,000 cash). Digital percentage = 95.83% (above 95%), so the Rs 3 crore limit applies. She is eligible for 44AD.
Deemed profit = (6% x Rs 2,30,00,000) + (8% x Rs 10,00,000) = Rs 13,80,000 + Rs 80,000 = Rs 14,60,000.
Under new regime (Section 115BAC): Tax on Rs 14,60,000 = Nil (within Rs 12 lakh rebate limit under Section 87A equivalent). No books, no audit, no advance tax stress.
Example 2 — Chartered Accountant (Section 44ADA)
CA Sharma earns Rs 60,00,000 in professional receipts during FY 2025-26, with Rs 58,00,000 received digitally (96.67% — above 95%). Enhanced limit of Rs 75 lakh applies. He is eligible for 44ADA.
Deemed profit = 50% of Rs 60,00,000 = Rs 30,00,000.
Under old regime: After 80C (Rs 1,50,000) and 80D (Rs 25,000), taxable income = Rs 28,25,000. Tax = approximately Rs 5,77,500 + cess. Under new regime: Tax on Rs 30,00,000 per 115BAC slabs = approximately Rs 3,60,000 + cess (with benefit of higher basic exemption and standard deduction).
Example 3 — Transport operator (Section 44AE)
Mr. Khan owns 4 trucks (each 20 MT GVW) and 3 light commercial vehicles (each 5 MT GVW), all owned for the full year.
Heavy trucks: 4 x 20 x Rs 1,000 x 12 = Rs 9,60,000. Light vehicles: 3 x Rs 7,500 x 12 = Rs 2,70,000. Total deemed income = Rs 12,30,000.
13. Changes from the 1961 Act
- Enhanced digital thresholds: The Rs 3 crore limit for 44AD and Rs 75 lakh for 44ADA (when 95% digital) were introduced via Finance Act 2023 amendments to the 1961 Act and are continued in the 2025 Act
- Dual-rate deemed profit: The 6%/8% differential for digital versus cash receipts, introduced via Finance Act 2016, continues unchanged
- Section numbering: While the substance is preserved, section numbers may differ — see our section number mapping guide
- Audit threshold enhancement: The Rs 10 crore audit threshold for 95% digital businesses, introduced in 2020, continues
- Structural placement: Presumptive taxation provisions are consolidated in the 2025 Act under the chapter dealing with profits and gains of business or profession
For a comprehensive comparison of the 1961 and 2025 Acts, see our transition guide.
Expert Insight — CA V. Viswanathan
The presumptive scheme is a powerful simplification tool, but taxpayers must exercise care at the boundaries. The 95% digital threshold is an all-or-nothing test — falling even slightly below 95% drops the eligible turnover limit from Rs 3 crore to Rs 2 crore, which could disqualify a business entirely. I advise clients to maintain digital payment records meticulously and aim for 96-97% digital receipts to provide a buffer. For professionals under 44ADA, the 50% deemed profit rate may be unfavourable for those with high expenses (rent, staff, equipment) — in such cases, maintaining regular books and claiming actual expenses under the normal computation may yield lower taxable income, despite the compliance burden. The opt-out lock-in under 44AD is often overlooked; a single year of lower-than-deemed income declaration triggers 5 years of mandatory books and audit. For guidance on choosing between presumptive and regular computation, contact our advisory team.
Key Takeaways
- Section 44AD: turnover up to Rs 3 crore (95%+ digital) or Rs 2 crore — deemed profit at 6% digital / 8% cash
- Section 44ADA: professional receipts up to Rs 75 lakh (95%+ digital) or Rs 50 lakh — deemed profit at 50%
- Section 44AE: up to 10 goods vehicles — Rs 1,000/ton/month (heavy) or Rs 7,500/month (others)
- No books of account or tax audit needed if income declared at or above deemed rates
- 44AD opt-out triggers 5-year lock-out with mandatory books and audit during lock-out period
- 44AD advance tax: single instalment by 15 March (exempt from quarterly schedule)
- LLPs are NOT eligible for 44AD; only individuals, HUFs, and partnership firms qualify
- Depreciation is deemed allowed — WDV of assets adjusted even though no actual depreciation claimed
- 95% digital receipt threshold is applied annually — falling below it reduces the eligible limit significantly
- ITR-4 (Sugam) is the prescribed form for all presumptive filers
Frequently Asked Questions — Presumptive Taxation AY 2026-27
Q: What is the turnover limit for Section 44AD presumptive taxation?
The turnover limit under Section 44AD is Rs 3 crore if 95% or more of total turnover/gross receipts during the financial year are received through prescribed digital/banking modes (UPI, NEFT, RTGS, cards, ECS, etc.). If digital receipts are below 95%, the limit is Rs 2 crore. The test is applied on the full year’s receipts, not monthly.
Q: What is the deemed profit rate under Section 44AD?
Under Section 44AD, deemed profit is computed at two rates: 6% on the portion of turnover received through digital/banking modes, and 8% on the portion received in cash. The taxpayer can declare higher income than these rates but cannot declare lower income without maintaining books of account and getting a tax audit done.
Q: Who is eligible for Section 44ADA presumptive taxation?
Section 44ADA is available to resident individuals engaged in specified professions: legal, medical, engineering, accountancy, architecture, interior decoration, film artistry, company secretaryship, authorised representation before tribunals, and information technology consultancy. Gross receipts must not exceed Rs 75 lakh (if 95%+ digital) or Rs 50 lakh (otherwise). Firms and LLPs are not eligible — only individuals.
Q: What happens if I opt out of presumptive taxation under Section 44AD?
If you declare income below the deemed rate or stop using 44AD after having opted in, you face a 5-year lock-out. For these 5 subsequent assessment years, you cannot use 44AD, must maintain full books of account, must get tax audit done if turnover exceeds the threshold, must pay advance tax in quarterly instalments, and must file ITR-3 instead of ITR-4.
Q: Is tax audit required under presumptive taxation?
No, tax audit is not required if you declare income at or above the deemed profit rate (6%/8% under 44AD or 50% under 44ADA). Audit becomes mandatory only if you declare income below the deemed rate. This exemption from audit is one of the primary benefits of the presumptive scheme, significantly reducing compliance costs for small businesses and professionals.
Q: What is the advance tax requirement under presumptive taxation?
Under Section 44AD, the entire advance tax must be paid in a single instalment by 15 March. The quarterly instalment schedule (15 June, 15 September, 15 December) does not apply, and Section 234C interest for deferment is not levied if 100% is paid by 15 March. However, under 44ADA and 44AE, the normal quarterly advance tax schedule applies — there is no single-instalment concession for professionals or goods carriage operators.
Q: Can an LLP opt for Section 44AD?
No. Section 44AD is specifically available only to resident individuals, HUFs, and partnership firms that are NOT LLPs. LLPs are explicitly excluded from the scope of Section 44AD. An LLP must maintain regular books of account, compute actual profits, and comply with audit requirements under Section 44AB if applicable. This distinction is important when choosing entity structure for a small business.
Q: What is Section 44AE for goods carriage operators?
Section 44AE applies to any person owning not more than 10 goods vehicles at any time during the financial year. Deemed income is Rs 1,000 per ton of gross vehicle weight per month for heavy goods vehicles (GVW exceeding 12 MT) and Rs 7,500 per month for other vehicles. The income is computed for each month or part of a month for which the vehicle is owned. No separate depreciation deduction is allowed on vehicles.
Q: Which ITR form should I use for presumptive taxation?
ITR-4 (Sugam) is the prescribed form for individuals, HUFs, and firms opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE. However, if the taxpayer has income from capital gains, income from more than one house property, income from foreign sources, foreign assets, or is a director in a company, ITR-3 must be used instead of ITR-4, even when claiming presumptive income.
Q: Can I declare income lower than the deemed rate under Section 44ADA?
Yes. Under Section 44ADA, you can declare professional income below 50% of gross receipts. However, if you do so, you must maintain books of account as required under Section 44AA (equivalent) and get them audited under Section 44AB (equivalent). Unlike Section 44AD, there is no 5-year lock-out for opting out of 44ADA — you can freely switch between presumptive and regular computation each year, though audit and book-keeping requirements apply when declaring below 50%.
Disclaimer: This article is for educational purposes and does not constitute legal or tax advice. Consult a qualified chartered accountant for advice specific to your situation. For tax planning and compliance assistance, visit Virtual Auditor.
